1. - 1 - © Mahdavi & Horton, 2011 by Mahnaz Mahdavi Professor of Economics Ann F. Kaplan ‘67 Faculty Director, Center for Women & Financial Independence Financial Illiteracy: Educated Women Too? June 20, 2012

2. - 2 - © Mahdavi & Horton, 2011 Demographic Statistics Age GroupsPercentage (%) 20s (n=970) 22.33 30s (n=870) 20.03 40s (n=717) 16.51 50s (n=737) 16.97 60s (n=624) 14.36 70+ (n=426) 9.81

3. - 3 - © Mahdavi & Horton, 2011 Demographic Statistics Household Income Groups Percentage (%) <$40,000 (n=687) 15.81 $40,001- $80,000 (n=953) 21.94 $80,001- $100,000 (n=467) 10.75 $100,001- $150,000 (n=741) 17.06 $150,001- $200,000 (n=526 )12.11 $200,001- $500,000 (n=755) 17.38 >$500,000 (n=215) 4.95

4. - 4 - © Mahdavi & Horton, 2011 Demographic Statistics Degree Types Percentage (%) BA (n=1,870) 43.05 MA (n=1,282) 29.51 JD (n=389) 8.95 MBA (n=347) 7.99 MD/PhD (n=456) 10.50

5. - 5 - © Mahdavi & Horton, 2011 Demographic Statistics Marital Status Percentage (%) Single (n=1,001) 23.04 Married (n=2,727) 62.78 Divorced/Widowed (n=616) 14.18 Children Percentage (%) Don’t Have (n=2,084) 47.97 Have (n=2,260) 52.03

6. - 6 - © Mahdavi & Horton, 2011 Demographic Statistics Employment Status Percentage (%) Student/Unemployed (n=362) 8.33 Employed/Self-Employed (n=3,013) 69.36 Retired (n=969) 22.31

7. - 7 - © Mahdavi & Horton, 2011 Demographic Statistics Parents’ Education Percentage (%) Mother HS/SC (n=1,583) 36.74 Mother BA/MA (n=2,414) 56.04 Mother PhD/PD (n=311) 7.22 Father HS/SC (n=1,072) 25.26 Father BA/MA (n=1,875) 44.18 Father PhD/PD (n=1,297) 30.56

8. - 8 - © Mahdavi & Horton, 2011 Demographic Statistics Sources of Financial InformationPercentage (%) Formal Only (n=943) 21.73 Informal Only (n=285) 6.57 Both (n=3,112) 71.71 Formal = Education, Employment, Financial Advisors/Institutions, Financial Press, Internet/Media Informal = Friends, Parents, Spouse/Partner, Other Family, Colleagues

9. - 9 - © Mahdavi & Horton, 2011 Demographic Statistics Influences on Money AttitudesPercentage (%) Any Formal (n=2,104) 48.50 No Formal (n=2,234) 51.50 Any Formal = Includes education and employment No formal = Parents, Spouse/Partner, Non-Professional Affiliation, Society/Politics/Religion, Particular Event

10. - 10 - © Mahdavi & Horton, 2011 Financial Knowledge Index Q1 (F) Which one of the following types of assets has earned the lowest average annual return over the past 80 years? a)US. Treasury bills b)Small-company stocks c)Large-company stocks d)Corporate bonds e)Don’t Know

11. - 11 - © Mahdavi & Horton, 2011 Financial Knowledge Index Q2 (M) Suppose you invest $1,000 in an account that earns 10% simple (non-compounding) interest annually. After 5 years, how much money will you have? a)$1,150 b)$1,500 c)$2,100 d)Don’t Know

12. - 12 - © Mahdavi & Horton, 2011 Financial Knowledge Index Q3 (F) When agencies such as Standard & Poor’s assess corporate bond risk, the rating is paid for by a)the government b)the investors c)the bond issuers d)Don’t Know

13. - 13 - © Mahdavi & Horton, 2011 Financial Knowledge Index Q4 (F) Suppose that a corporate bond has a rate of return of 6% and a similar municipal bond has a rate of return of 4.2%. If you are in the 30% tax bracket, which of the following statements is correct? a)After-tax corporate bond rate of return is actually 4.2% b)After-tax municipal bond rate of return is actually 2.9% c)After-tax corporate bond rate of return is actually 6% d)Don’t Know

14. - 14 - © Mahdavi & Horton, 2011 Financial Knowledge Index Q5 (M) Suppose that you invested $100K in an asset that earns 10% compound interest annually. If you earn 10% in the first year and lost 10% in the second year, at the end of year 2 how much money will you have? a)More than $100K b)Less than $100K c)Exactly $100K d)Don’t Know

15. - 15 - © Mahdavi & Horton, 2011 Financial Knowledge Index Q6 (F) Which of the following states about load versus no-load mutual funds is correct? a)Load mutual funds usually earn higher returns than no-load mutual funds. b)Load mutual funds usually do not charge management fees. c)Load mutual funds cost more than no-load mutual funds. d)Don’t Know

16. - 16 - © Mahdavi & Horton, 2011 FKI Summary Statistics Number of Questions Answered Correctly Percentage (%) of Respondents 0 (n=355) 8.17 1 (n=726) 16.71 2 (n=889) 20.47 3 (n=799) 18.39 4 (n=732) 16.85 5 (n=520) 11.97 6 (n=323) 7.44

17. - 17 - © Mahdavi & Horton, 2011 FKI Summary Statistics Correct (%) Don’t Know (%) Q1(F): Historical Rates of Return 38.1455.80 Q2(M): Multi-period Simple Interest 83.7210.20 Q3(F): Bond Ratings 36.8855.43 Q4(F): Tax Implications on Bonds 34.3961.12 Q5(M): Multi-period Compound Interest 55.2520.63 Q6(F) – Mutual Funds 38.3156.56

18. - 18 - © Mahdavi & Horton, 2011 FKI Descriptive Statistics Mean (Standard Deviation) Overall FKI47.44(28.39) Age Groups 20s34.66(25.48) 30s43.68(26.61) 40s51.19(28.16) 50s55.04(28.16) 60s57.37(27.99) 70+50.31(27.82)

19. - 19 - © Mahdavi & Horton, 2011 FKI Descriptive Statistics Mean (Standard Deviation) Overall FKI47.44(28.39) Household Income Groups <$40K31.76(23.82) $40-80K42.01(26.96) $80-100K45.61(27.17) $100-150K50.47(27.51) $150-200K52.47(27.68) $200-500K58.54(27.31) >$500K64.03(29.02)

20. - 20 - © Mahdavi & Horton, 2011 FKI Descriptive Statistics Mean (Standard Deviation) Overall FKI47.44(28.39) Degree Type BA43.06(27.42) MA43.46(27.73) MD/PhD48.10(26.45) JD57.80(27.48) MBA73.39(22.05)

21. - 21 - © Mahdavi & Horton, 2011 FKI Descriptive Statistics Mean (Standard Deviation) Overall FKI47.44(28.39) Marital Status Single40.74(28.02) Married49.69(28.07) Divorced/Widowed48.43(28.75) Children Don’t Have42.67(28.01) Have51.85(28.04)

22. - 22 - © Mahdavi & Horton, 2011 FKI Descriptive Statistics Mean (Standard Deviation) Overall FKI47.44(28.39) Employment Status Student/Unemployed37.80(25.98) Employed/Self-Employed46.18(28.18) Retired55.01(28.24)

23. - 23 - © Mahdavi & Horton, 2011 FKI Descriptive Statistics Mean (Standard Deviation) Overall FKI47.44(28.39) Parents’ Education Mother HS/SC47.60(28.29) Mother BA/MA47.82(28.35) Mother PhD/PD44.48(28.57) Father HS/SC44.51(28.37) Father BA/MA49.38(28.32) Father PhD/PD47.19(28.13)

24. - 24 - © Mahdavi & Horton, 2011 FKI Descriptive Statistics Mean (Standard Deviation) Overall FKI47.44(28.39) Sources of Information Formal Only51.75(28.52) Informal Only28.54(23.79) Both47.90(28.046) Influences on Attitudes Any Formal50.94(28.73) No Formal44.17(27.68)

25. - 25 - © Mahdavi & Horton, 2011 Regression Analysis Main Effects Model (MEM)* FKI score increases with Age: 60s know the most, 70+ have higher FKI scores than those in 20s and 30s FKI score increases with HHI: impact is greater than Age for incomes $200K+ Respondents with MBAs have the highest FKI score followed by JDs Reference group: Age = 20s, HHI = <$40K, Degree Type = BA

26. - 26 - © Mahdavi & Horton, 2011 + Marital Status and Children No statistically significant impact on FKI scores Regression Analysis Main Effects Model (MEM) Reference group: Age = 20s, HHI = <$40K, Degree Type = BA; Marital Status = Single; No Children

27. - 27 - © Mahdavi & Horton, 2011 Regression Analysis Main Effects Model (MEM) + Employment Status Combination of Employment Status and HHI impacts FKI score Combination of Employment Status and Degree Type impacts FKI score Reference group: Age = 20s, HHI = <$40K, Degree Type = BA; Employment Status = Student / Unemployed

28. - 28 - © Mahdavi & Horton, 2011 Example of Employment Status Impact 1.65 year old + $145,000 HHI + PhD + Employed + Combined impact of Employed / $145,000 HHI + Combined impact of Employed / PhD Predicted FKI Score = 50.78% 2.65 year old + $145,000 HHI + PhD+ Retired + Combined impact of Retired / $145,000 HHI + Combined impact of Retired / PhD Predicted FKI Score = 64.14%

29. - 29 - © Mahdavi & Horton, 2011 + Parent’s Education Father’s Education has statistically significant impact on FKI score Combination of Father’s Education with Respondent’s Degree Type impacts FKI score Regression Analysis Main Effects Model (MEM) Reference group: Age = 20s, HHI = <$40K, Degree Type = BA; Parents’ Education = High School/Some College

30. - 30 - © Mahdavi & Horton, 2011 Example of Father’s Education Impact 1.34 year old + $82,000 HHI + JD + Father with HS/SC + Combined impact of JD / Father HS/SC Predicted FKI Score = 42.43% 2.34 year old + $82,000 HHI + JD + Father with BA/MA + Combined impact of JD / Father BA/MA Predicted FKI Score = 53.83%

31. - 31 - © Mahdavi & Horton, 2011 Regression Analysis Main Effects Model (MEM) + Sources of Financial Information (Formal/Informal) Statistically significant impact on FKI score Combination of Sources and Age impacts FKI score Reference group: Age = 20s, HHI = <$40K, Degree Type = BA; Sources = Informal only

32. - 32 - © Mahdavi & Horton, 2011 1.43 year old + $210,000 HHI + MD + Informal Only + Combined impact of 43 year old / Informal only Predicted FKI Score = 32.89% 2.43 year old + $210,000 HHI + MD + Formal Only + Combined impact of 43 year old / Formal only Predicted FKI Score = 51.81% Example of Sources of Information Impact

33. - 33 - © Mahdavi & Horton, 2011 Regression Analysis Main Effects Model (MEM) + Influences on Money Attitudes (Formal/Informal) Statistically significant impact on FKI score Combination of Influences and HHI impacts FKI score Combination of Influences and Degree Type impacts FKI score Reference group: Age = 20s, HHI = <$40K, Degree Type = BA; Influences = No formal

34. - 34 - © Mahdavi & Horton, 2011 1.52 year old + $54,000 HHI + MA + No Formal + Combined impact of No Formal / $54,000 HHI + Combined impact of No Formal / MA Predicted FKI Score = 38.76% 2.52 year old + $54,000 HHI + MA + Any Formal + Combined impact of Any Formal / $54,000 HHI + Combined impact of Any Formal / MA Predicted FKI Score = 48.56% Example of Influences on Money Attitudes Impact

35. - 35 - © Mahdavi & Horton, 2011 Some Concluding Thoughts FKI score increases with Age Young women need financial education: 20s / 30s average score on FKI is 39% Yet…the highest mean FKI score for educated women in 60s is only 57% Financial education needs to be continuous

36. - 36 - © Mahdavi & Horton, 2011 Regardless of Age, Educated Women are Worried About Their Financial Security Age Groups Percentage (%) 20s85 30s86 40s81 50s78 60s68 70s55 80+55

37. - 37 - © Mahdavi & Horton, 2011 Other things matter  FKI score for HHIs under $40K is 34% compared to HHIs over $200K at 61%  Education: type of degree and using educational sources of information  Any type of degree that has a financial component improves financial knowledge  Formal sources of financial information can significantly improve financial knowledge

38. - 38 - © Mahdavi & Horton, 2011 Household Income Groups Percentage (%) < $40K88 $40-80K83 $80-100K79 $100-150K78 $150-200K75 $200-500K68 $500-$1,000K64 > $1,000K55 Regardless of HHI, Educated Women are Worried About Their Financial Security

39. - 39 - © Mahdavi & Horton, 2011 Degree Type Percentage (%) BA79 MA78 MBA76 MD/PhD73 JD81 Regardless of Degree, Educated Women are Worried About Their Financial Security

40. - 40 - © Mahdavi & Horton, 2011 Educated women need education … financially speaking

41. - 41 - © Mahdavi & Horton, 2011 Thank You. Visit us the next time you are on campus or visit our website: www.smith.edu/wfiwww.smith.edu/wfi Neilson Archway  Smith College  Northampton, MA 01063 T: 413.585.3653  E: wfi@smith.eduwfi@smith.edu